according to the utility function U = Min [C, P]. In any given week, Minnie spends £20 to purchase these two products. Assume that Minnie is a u maximiser and has to pay 50p for a unit of apple pie and £2 for a unit of chocolate cake. (i) Consider the bundle C = 20 and P = 5. Is this the utility maximizing ch subject to Minnie's budget?. (ii) Suppose that Minnie chooses the exact bundle that maximizes her How would the utility maximizing choice of C be affected if price of P w (iii) Explain under which conditions the tangency condition does not wo Given that the tangency condition does not work, discuss how we can f the optimal consumption bundle for a consumer.

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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4. Minnie enjoys dessert by eating chocolate cake (C) and apple pie (P)
according to the utility function U = Min [C, P]. In any given week, Minnie
%3D
spends £20 to purchase these two products. Assume that Minnie is a utility
maximiser and has to pay 50p for a unit of apple pie and £2 for a unit of
chocolate cake.
(i) Consider the bundle C = 20 and P = 5. Is this the utility maximizing choice
subject to Minnie's budget?.
%3!
(ii) Suppose that Minnie chooses the exact bundle that maximizes her utility.
How would the utility maximizing choice of C be affected if price of P went up?
(iii) Explain under which conditions the tangency condition does not work.
Given that the tangency condition does not work, discuss how we can find out
the optimal consumption bundle for a consumer.
Transcribed Image Text:4. Minnie enjoys dessert by eating chocolate cake (C) and apple pie (P) according to the utility function U = Min [C, P]. In any given week, Minnie %3D spends £20 to purchase these two products. Assume that Minnie is a utility maximiser and has to pay 50p for a unit of apple pie and £2 for a unit of chocolate cake. (i) Consider the bundle C = 20 and P = 5. Is this the utility maximizing choice subject to Minnie's budget?. %3! (ii) Suppose that Minnie chooses the exact bundle that maximizes her utility. How would the utility maximizing choice of C be affected if price of P went up? (iii) Explain under which conditions the tangency condition does not work. Given that the tangency condition does not work, discuss how we can find out the optimal consumption bundle for a consumer.
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